Fitch Ratings has affirmed the ratings on all classes of GRACE Trust 2020-GRCE Mortgage Trust commercial mortgage pass-through certificates.

The Rating Outlooks remain Stable for all classes.

RATING ACTIONS

Entity / Debt

Rating

Prior

GRACE 2020-GRCE

A 38406JAA6

LT

AAAsf

Affirmed

AAAsf

B 38406JAE8

LT

AA-sf

Affirmed

AA-sf

C 38406JAG3

LT

A-sf

Affirmed

A-sf

D 38406JAJ7

LT

BBB-sf

Affirmed

BBB-sf

X 38406JAC2

LT

AA-sf

Affirmed

AA-sf

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Stable Performance: The affirmations reflect stable property performance that remains in line with issuance expectations, along with the high quality and prime location of the collateral, and institutional sponsorship.

As of the January 2024 rent roll, the property was 99.7% occupied compared with 100% at YE 2022, 99% at YE 2021, 100% at YE 2020 and 95% at issuance. The servicer-reported YE 2023 NCF DSCR was 2.95x compared to 2.62x at YE 2022 and 2.16x at YE 2021.

The updated Fitch sustainable NCF is $87.5 million, which is 4.8% below Fitch's issuance NCF of $91.9million. Fitch's NCF assumption includes leases in place as of the most recently reported rent roll with credit for near-term contractual rent steps. Fitch assigned office tenants a 10% vacancy; exceptions include Bank of America and Israel Discount Bank, which Fitch assigned a 2% and 5% credit stress, respectively, due to long-term leases. The NCF also factors a 10% stress to the reported insurance expense due to expected increases in insurance premiums and higher leasing cost assumptions that reflect current office market conditions.

According to Costar, the submarket vacancy and availability rates and average asking rents were 14%, 19.6% and $77.47 psf, respectively. Average in-place rents for office tenants are $96.89 psf. Fitch's sustainable long-term occupancy assumption of 91%, which is above the submarket occupancy, reflects the strong collateral quality and position in the market.

Trophy Office Collateral in Prime Manhattan Location: The Grace Building is a LEED Gold Certified, class A office tower featuring an iconic design located near Bryant Park, an excellent Midtown Manhattan location. The property is situated within walking distance to Manhattan public transportation hubs, including Times Square, Grand Central Terminal, New York Penn Station and the Port Authority Bus Terminal.

Long-Term Creditworthy Tenancy; Limited Near-Term Rollover: Investment-grade tenants include Bank of America (10.0% of the NRA, May 2042 lease expiration) and Bain & Company Inc (7.8%, February 2030), and one creditworthy tenant, Israel Discount Bank (9.2%, December 2040). The January 2024 rent roll shows limited lease rollover accounting for 4% and 5% of the leasable space in 2024 and 2025, respectively.

Experienced Sponsorship: The Grace Building is owned through a joint venture (JV) of Brookfield, Triwaic and The Swig Company, the original property owner. Brookfield bought into the property in 2006 as part of its acquisition of Trizec Office. Brookfield Property Partners, an affiliate of the sponsor, has approximately $130 billion of total assets. The Swig Company is a private investment company with over 80 years of experience and a real estate portfolio spanning most major markets within the U.S.

Fitch Leverage: The $1.25 billion whole mortgage loan ($803/sf) has a Fitch debt service coverage ratio (DSCR) and loan to value ratio (LTV) of 0.85x and 103.6%, respectively, compared to the Fitch DSCR and LTV of 0.92x and 95.2% at issuance and 0.90x and 96.8% at the last rating action in 2023. Fitch incorporated a Fitch-stressed capitalization rate of 7.25%, an increase from 7% at issuance and the prior review to factor increased office sector concerns.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Although not expected given the trophy- and high-asset quality and prime location of the collateral, downgrades and/or Negative Outlooks, are possible should property NCF, occupancy, and/or market conditions deteriorate beyond Fitch's view of sustainable performance.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Upgrades are not likely given the headwinds facing office properties and single-event risk. The current ratings reflect Fitch's view of sustainable performance; however, upgrades are possible with significant and sustained improvement of submarket fundamentals and Fitch NCF.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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